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Phone: 805.492.7045
Due to precautions related to COVID-19, we have expanded our options for remote consultations. Please contact our office to discuss whether a full phone consultation or video conference is appropriate for your situation.

Mortgage Debt Forgiveness Relief Act

Mortgages are something that millions of people deal with every month. A mortgage makes it possible to buy the home you want without having to have a ton of money up front. That being said, mortgage payments can be difficult to keep up with, especially if your work and money flow are interrupted as many have been during the current pandemic.

Debt forgiveness is possible no matter what the current climate is and making sure you understand it can help you to figure out if this process is right for you.

What is Cancellation of Debt?

The cancellation of debt is the process by which debt is forgiven by the lender on behalf of the borrower. This means that you may have borrowed money for a certain purpose and the lender then forgives the loan an you are no longer responsible for paying back that debt.

This is not something that is applicable for all debt and it is always best to take the time to do your research before you start any sort of debt forgiveness proceedings.

Mortgage Forgiveness

Mortgage forgiveness is just what it sounds like, your mortgage lender or lending agency may forgive a portion of your mortgage debt in certain circumstances. This does not apply for all lenders, all mortgages, and all borrowers.

In most cases, someone who is current in their mortgage payments and is not struggling or dealing with potential or in process foreclosure is not going to qualify for mortgage forgiveness. Mortgages are essential and many lenders are not going to simply forgive a portion of your debt let alone your entire debt just because.

Another way is through Loan modification program, where you negotiate new terms for your original loan.

Mortgage Forgiveness Programs

There are tons of different forgiveness programs out there but the one that most people have heard of is the federal Mortgage Debt Forgiveness Relief Act. This act was passed in 2007 and helps those that have restructured their current mortgage or have been through foreclosure.

The act was created to help prevent mortgage payments or balances that have been forgiven or restructured from being taxed.

This means that if you have a home that was foreclosed on and you do not live there anymore, you are not going to be charged taxes on the mortgage that was forgiven. Similarly, if you change your mortgage or restructure it for a lower amount you are not going to be charged the taxes on the first amount but rather the current amount.

Most lenders do have a few options when it comes to helping their borrowers make their mortgage payments. The most common type of mortgage forgiveness is restructuring.

This means that the original terms of your mortgage are going to be restructured to offer a lower payment or to offer different payment options. This is especially helpful if you have had your home for a long time and you have paid off a great deal of the initial mortgage.

Foreclosure is the other option in which the home is forfeited for the remainder of the loan and the borrower is not responsible for paying off the rest of the loan.

Approach to Mortgage Forgiveness

Foreclosure does not normally start until the borrower is at least 120 days behind on their mortgage payment. This means that you do still have time to catch up if you miss a payment. You may have to deal with fees and other added costs if you do miss payments.

For restructuring the first step is going to be to contact your lender and see what options you have.

In most cases, contacting your lender is going to give you the chance to find out what you can do to start repaying your loan and making a difference in your overall debt. Like:-

  • Gather your financial documents like proof of income, bank statements, tax returns and monthly expenses – For loan modification, deed-in-lieu & short sale.
  • Specify you hardships like job loss, illness or disability – Explain why you can no longer pay off the principal balance.
  • Request a letter from your money lender and ask them to define precisely the terms of mortgage forgiveness – Key elements like:  the amount lender agrees to forgive.

Other Options for Mortgage Forgiveness

  1. Short Sale:  In a short sale, the lender accepts the sale price of your house as payment in full on your mortgage, even if the home auctions for less than you owe. The home goes on the market like any other house, and you receive offers, then the lender decides which one to accept.
  2. Deed-in-lieu of foreclosure:In this, you leave your home voluntarily, without forcing your lender to go through the expensive and time-consuming process of foreclosure.
  3. Non-judicial foreclosure
  4. Second Mortgages

Currently, during the pandemic, many borrowers have been given the option of forbearance, this means that the payment is not due during this time but that it does move to the back of your loan. This means that if you do not have the money to make the payment now, you can then make the payment later.

You are likely not going to be able to get your debt forgiven entirely but speaking with your lender can open up a world of opportunities.

Some lenders do offer options and special programs to help keep their borrowers current on their loan payments. Mortgage can be difficult, taking the time to find the right options for you can make a big difference overall.

If you are battling with mortgage debt issue in California and want to get yourself out, then consider these mortgage debt relief options. Still uncertain what to do? Consult with us, we will help you.