Modifying a Mortgage When Your Name’s Not On It

Getting a Loan Modification for Successor-in-Interest

Mrs. Jones’ husband died of a heart attack last month. To continuing living her home, Mrs. Jones needs to reduce the monthly payment to an amount she can afford with her reduced income. However, when Mrs. Jones contacts the mortgage company to request a modification, she is told that no one can speak to her because “you’re not on the mortgage.”

Although Mr. and Mrs. Jones were both on the title to the property and both signed the mortgage, only Mr. Jones signed the promissory note. Because only Mr. Jones signed the promissory note, only Mr. Jones had the obligation to pay. When Mr. Jones passed away, Mrs. Jones became a successo-in-interest to the property but not to the obligation to pay the promissory note. Mrs. Jones however must pay the promissory note if she wants to stay in the home.

If Mrs. Jones wants to modify the payment terms of the promissory note, she needs to communicate with the mortgage servicer. However, a mortgage loan servicer will only speak with the person(s) who signed the promissory note. This presents a problem for widows and widowers, like Mrs. Jones, who want to stay in their homes but need a loan modification to make it financially feasible. If the mortgage servicer refuses to talk with Mrs. Jones, it is impossible for her to make a reasonable decision about keeping or leaving the home.

Fortunately, in 2014, the Consumer Financial Protection Bureau (CFPB), issued regulations that all servicers must maintain procedures to work with successors-in-interest when a borrower dies. Under the regulations, the servicer must develop policies and procedures to suspend foreclosure, speak with the successor-in-interest and process loan assumption and loan modification documents simultaneously.

This regulation assists widowers, like Mrs. Jones, as well as other people, such as children or siblings, who inherit property. This article addresses the legal status of widows and widowers as successors-in-interest.

In this case, for Mrs. Jones to obtain a modification, she will first need to assume the loan. Generally, contract rights are freely assumable, unless the contract states otherwise. In other words, it is up to Mrs. Jones to decide whether to assume the note. Upon assumption, Mrs. Jones will have all the rights and responsibilities of the original borrower (her deceased husband), including the right to apply for a loan modification.

The Due-on-Sale Clause

Although most mortgage notes do not restrict assumption of the mortgage note, the typical mortgage note restricts the transfer of the property. This is commonly referred to as a “due-on-sale” clause. A due on sale clause allows the lender to demand immediate payment in full when any interest in the property is sold or transferred, without the lender’s prior written consent.

As a practical matter, a due-on-sale clause may limit a person’s ability to assume a mortgage note, because an assumption will likely require a transfer of ownership of the property. Thus, although a party can freely assume the mortgage note, the transfer may trigger the due-on-sale clause and an immediate foreclosure.

Fortunately for Mrs. Jones, under federal law, a due-on-sale clause cannot be enforced when an interest in real property is transferred to a surviving spouse by will or statute. Garn-St. Germain Depository Institution Act and Brush v. Wells Fargo Bank, NA (2013).
In other words, in most cases, a widow can freely assume a mortgage note without permission from the lender.

Once the mortgage note is assumed, Mrs. Jones has the right to apply for a loan modification like any other borrower. However, Mrs. Jones does not want to assume the mortgage loan unless she knows the loan will be modified. Unfortunately, she cannot get an answer about modification until the loan is assumed. To address this catch-22, most lenders have adopted servicing guidelines requiring evaluation of the loan modification first, and then simultaneous approval of both the loan modification and the assumption.

The Process

The process for modification and assumption will be vary depending on the lender. Although different rules apply if the loan is held by the US Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac or a private investor using a Home Affordable Modification Program (HAMP) participating servicer, most loans at a minimum have a procedure to assume and modify the mortgage loan. The best place to start research about the lender is the loan look-up tool on Making Home Affordable.

If the loan is serviced by a HAMP servicer, the Making Home Affordable Handbook outlines the requirements and process loan assumption and modification. Under HAMP, a non-borrower widow or widower may apply for a modification as if he or she was the borrower. If the mortgage is already in a Trial Payment Plan (TPP), the servicer is required to send written notice to the widower outlining the requirements to assume the TPP or to apply for a new HAMP modification based on current income. Importantly, the servicer must stay the foreclosure process while the assumption process goes forward.

If the loan is held by Fannie Mae, the servicer must evaluate a modification request from a widow or widower as if it came from the borrower. Likewise, Freddie Mac guidelines allow for simultaneous assumption and modification after the borrower’s death. Finally, HUD has a general policy allowing loan assumption with a credit review.

In summary, it is possible for a widow or widower to assume and modify a mortgage loan in many circumstances. You should contact a Home Ownership Counselor to assist you with the process. To find a free Home Ownership Counselor visit www.homehelpnh.org or call 2-1-1 (in NH).

Mary Stewart and Krista Atwater are independent contract attorneys for the NH Bar Association Foreclosure Relief Project. For information about assistance with a loan modification, see www.homehelpnh.org.

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LawLine: Free Legal Advice – 800-868-1212

Do you have a BRIEF LEGAL QUESTION? LawLine, the NH Bar Association’s free legal hotline is held on the second Wednesday of each month, from 6 – 8 pm.

Volunteer New Hampshire attorneys will take calls from the public and will give brief legal information and advice. This is a FREE public service. Call 1-800-868-1212.

Do you have more than a brief legal question and suspect you may need an attorney to represent you?  The NH Lawyer Referral Service can refer you to a competent local  attorney who handles your type of legal matter.  Call (603) 229-0002 today or fill out the Lawyer Referral Service request form at:  https://www.newhampshirelawyerreferral.com/contact-us.

NH Housing Mortgages Not Just for First Time Buyers

PRESS RELEASE – Bedford, NH  (June 19, 2012)

For the first time in its 35 years of mortgage lending, New Hampshire Housing Finance Authority will offer affordable mortgage loans and downpayment assistance to all income qualified homebuyers throughout the state – not just first-time buyers.

Since 1976, New Hampshire Housing has provided nearly 39,000 mortgage loans to low- and moderate-income families and individuals. Approximately 90 percent of those loans have been to first-time buyers who were able to take advantage of the many benefits of the agency’s programs, such as homebuyer education, cash assistance for downpayment and closing costs, and low downpayment requirements.

Now, with the launch of the agency’s newly revamped loan programs, those same benefits are available to current homeowners who wish to purchase a new home. The revised program structures will also benefit New Hampshire Housing’s lending partners and real estate professionals through more streamlined application, underwriting and closing processes.

Read entire press release at NewHampshire.com

Purchasing a home? The Lawyer Referral Service of the NH Bar Association  can help with a referral to a qualified real estate attorney to review your Purchase and Sales agreement and any other assistance you may need throughout the process.  Having an attorney to guide you can prevent issues that might crop up years later.  Call LRS at 603-229-0002 or request an online referral.

 

How to Prevent Property Fraud

According to the FBI, property fraud is one of the fastest growing white collar crimes, and anyone who owns property is at risk.

Unfortunately, it’s not difficult for a criminal to record a fraudulent deed for your property, making it appear as if they now own your home.  Once this is  done, they can use your home as collateral on a loan or even attempt to sell your home to an unsuspecting buyer.  You are the one left to sort out the mess once the criminals  have skipped town with the money.

To prevent this from happening to you, register for the Property Fraud Alert System at www.propertyfraudalert.com.  This service will alert you anytime someone records anything with your information on it with your county.  There is no charge for this service.  Most NH County Registries of Deeds offer the service directly from their websites, or you may call 1-800-728-3858 to register.

If you do become a victim of property fraud or any other type of identity theft, the Lawyer Referral Service of the New Hampshire Bar Association can help with a referral to an attorney who is trained to handle this type of legal matter.  Call LRS at 603-229-0002 or request an online referral.

 

Rental Caps Pose Problems For Condo Owners

Rather than attempt to sell property in a depressed market, many condominium owners want to be able to rent out their units.  Unfortunately, rental caps may prevent owners from being eligible to rent out the property for years due to the number of units in the building that are already being rented out.

It’s a conundrum many condo-unit owners face these days. They might want to leave town for a job opportunity, or they need a home with more space for an expanding family. Sometimes, it’s the unit of a parent who has died, and the heirs would rather rent out the property than sell in a depressed market. Given the red-hot market for apartment rentals, becoming a landlord seems the best option.

But if there’s a rental restriction in place, these homeowners may find themselves out of luck, forced to stay put, keep the unit vacant, sell for a low price or, worse, end up in foreclosure.

These types of rules aren’t new, but over the past few years many boards of both condo associations and those governing single-family-home communities have taken “a very hard and fast look at the rental policies they have in place to see if they work appropriately,” said Paul Grucza, executive vice president of Classic Property Management in Arlington, Texas.

There are usually good intentions behind these rental rules. Many associations are protecting their communities from getting a reputation for having “transient” residents. And some share a belief that owners in residence take better care of their properties than renters.

Read the entire story by Amy Hoak – MarketWatch of the Wall Street Journal.

If you are having issues with your condominium association, the Lawyer Referral Service can refer you to competent attorneys who specifically handle condominium law issues.  Call 603-229-0002 or request an online referral.