Loan modifications are a means to avoid foreclosure and helping homeowners to continue making timely mortgage payments. Loan modifications are useful because they can result in modifications that extend the loan period, lower the principal amount or the interest rate, or change the loan from a variable interest rate to a fixed-interest loan. In New York, you can typically qualify for a loan modification if you can:
- provide the documentation the mortgage lender needs and requires to evaluate your request;
- show a financial hardship prevents you from affording your current mortgage payment; and
- complete a trial period – e.g., three months – proving you can make the new payment.
After all has been shown and done and the loan modification is approved and becomes permanent, what happens if you decide to sell the property? Will this be allowed? The loan modifications were made to favor you and not necessarily the bank, so will selling the home be permitted?
Can you sell your home after a loan modification becomes permanent in New York?
You can sell your home after a loan modification becomes permanent in New York, but you may want to keep in mind a few things.
For instance, if your loan modification involved an interest rate change from a variable to a fixed rate, the lender could have applied the reduced interest amount to the back end of the loan, meaning you must pay it later (or possibly at the time of sale). The same is true if the loan modification involved a reduction in the interest rate.
Also, if the loan modification involved a deferral or reduction of the principal when the loan matures or you sell the property, you may have to pay the amount of the deferred principal.
Why do homeowners often want to sell their property after a loan modification?
It seems strange a homeowner would want to sell his or her property after saving the home from foreclosure and going through the whole process of loan modification. But it happens, and there are credible reasons for it to happen. Here are three of those reasons:
- Continued Hardship. Even after a loan modification, homeowners may continue to struggle to make their payments, and this could be because they were never truly financially capable of doing so or another hardship has hit their lives (e.g., death of a spouse, illness, or unemployment). These homeowners may want to avoid another potential foreclosure by timely selling the property.
- Relocation. There may be a reason the homeowner needs to relocate from the current location to another location. Reasons include things like a career change or family situation (e.g., an ailing parent or a recent divorce).
- Lifestyle Changes. Some homeowners may simply want a smaller, more manageable property. This could be because children have grown up and moved out or because they want to take advantage of any equity they may now have.
So, whatever your reason, you can sell your home after a loan modification approval – the latter doesn't lock you into the home for the duration of the modified loan. For some people, it may have even been an overall strategy to avoid a short sale or foreclosure and to sell the home when in good standing. To learn more about loan modification and how it can help you, always contact an experienced New York real estate attorney with a specific practice in loan modifications.