Terms & Definitions

1. Foreclosure Breach Letter
The Breach Letter is a formal letter sent to you in an attempt by the lender to avoid foreclosure action. The lender hopes this letter will encourage you to contact them to work out an agreement called a "Foreclosure Workout."

2. Foreclosure Workout (AKA Loss Mitigation Agreement)
The Foreclosure Workout or Loss Mitigation Agreement refers to the agreement that you work out with the lender to bring your loan current. If you do not work out a plan within approximately 45 days of the date of the Breach Letter, your case is normally referred to an attorney to begin foreclosure procedure.

3. Attorney Referral
The lender will refer your case (delinquent loan) to an attorney, usually with 90 to 120 days, who then files a petition in court to foreclose on your mortgage and give the lender the right to sell the home to pay off the outstanding balance of your loan. The average time between attorney referral and the foreclosure sale varies by state.

4. Junior Lienholders
Junior Lienholders are also know as secondary or other lienholders. They refer to individuals or companies who have a recorded lien against the property.

Your primary lender may contact junior lienholders to determine the status of your loan with them. Once contacted, these other lienholders may initiate a separate foreclosure action to protect their interest pursuant to the terms and conditions of the mortgage or deed of trust.

Note: Separate action by junior lienholders does not usually prevent you from completing a Foreclosure Workout Agreement with your lender. Because it's to their advantage, most lienholders readily agree to participate in the workout solution.

5. Special Relief Provisions
Fannie Mae provides Special Relief Provisions that attempt to span periods of financial hardship that cannot be resolved by delinquency counseling or with a simple workout plan. Most lenders follow Fannie Mae's lead and do not object to any reasonable workout plan provided it does not compromise the lien position or come into conflict with any other policy or commitment.

Special Relief Provisions are normally offered when a delinquency is the result of a temporary condition, such as illness, unexpected expenses, or military service, and there is a reasonable chance the borrower can bring the mortgage current. During the term of a Special Relief Provision the property, will be subject to scheduled inspections.

6. Temporary Indulgence
Temporary Indulgence is a grace period, usually 30 to 60 days, that may be granted to allow you to bring the mortgage current. If requested, you will have to demonstrate evidence that you can bring the loan current such as proof that you . . .

7. Liquidating Plan
A Liquidating Plan allows additional proceeds to be added to the the regular monthly payment after the hardship has passed and the borrower can resume regularly scheduled payments.

Fannie Mae, HUD and VA policy allows most any creative solution agreed to under a Liquidating Plan that will remove the delinquency in the shortest amount of time.

8. Special Forbearance
Special Forbearance is the suspension of payments for a specified period of time, usually no more than 18 months from the date of the first payment under this agreement.

At the end of the suspended period, the borrower may be expected to resume payment under a Liquidating Plan. This plan is used to assist borrowers experiencing a temporary loss or reduction in income that is expected to be restored at a later date.

Most lenders provide a Special Forbearance in any situation for which there is documentation and relief is warranted.

9. Long Term Special Forbearance
In certain situations Special Forbearance can be extended up to 24 months.

10. Military Indulgence
If you had a mortgage as a civilian and then later entered the military, you may be entitled to Military Indulgence granted under the terms of the Soldiers' and Sailors' Civil Relief Act. There are two components of this provision:

A. Interest Rate Reduction

This requires the lender to reduce the interest rate to 6% from the time the borrower begins active duty to the date of release. However, just entering the military is not enough; you must show that your income was significantly reduced as a result of entering active duty and that this has caused your financial hardship.

If you qualify, this benefit is retroactive to your date of enlistment.

B. Additional Forbearance

In certain cases related to the financial hardship usually associated with the loss of greater civilian pay, the veteran may request special consideration in the form of a reduction in the monthly mortgage obligation. The difference between the scheduled payment and the reduced payment is referred to as arrearage by Fannie Mae.

Upon release from active duty, the borrower is responsible for bringing the arrearage current.

Note: Most lenders will not normally foreclose on a delinquent borrower that has been granted Military Indulgence. In fact, it is Fannie Mae's policy to offer the borrower Additional Forbearance in this situation. If you cannot make payments, you should seek a court order granting a stay of the mortgage obligation until you're released from active duty.

11. Foreclosure Prevention Plans
In spite of your best efforts to bring your mortgage current, sometimes we face temporary financial setbacks. Rather than foreclose most lenders would rather work out a solution that protects their profit interests.

12. Repayment Plan:
A Repayment Plan is a structured arrangement in which the borrower repays delinquent installments or makes advances to bring the mortgage current. This formal plan may include Special Forbearance.

13. Loan Modification:
A Loan Modification is when one or more of the terms of the loan are changed to bring the delinquent mortgage current.

14. Forbearance (Repayment Plan)
Forbearance is the formal Repayment Plan and it is based on the Special Forbearance provision and is the preferred workout option because it is the least costly workout alternative. It is usually considered when delinquency is the result of:

The death of a contributor to the monthly mortgage payment and this does not necessarily have to be a person on the mortgage;

Illness, catastrophe, or natural disaster for which the borrower is not insured; or

Any similar or contributing factor. Repayment plans may be customized to fit most any need or solution; however they cannot exceed 24 months. (see Special Forbearance.)

15. Modification (Replacement Mortgage)
A Modification is a change to the terms of the mortgage in order to remove a delinquency and avoid foreclosure. Modification includes reducing the interest rate, extending the term of the mortgage, negative amortization, replacing an adjustable rate with a fixed rate and capitalizing the delinquent payments.

Modification is appropriate when the potential for a Repayment Plan is needed due to a permanent or long term reduction in income. Other lienholders having a recorded interest in your property must agree to subordinate their interest to the new loan.

This is a particularly attractive workout solution if you have sufficient equity in the property to pay off junior liens using the new loan.

16. Modification Eligibility
You may qualify for a loan modification if you are experiencing a permanent or severe financial hardship.

Normally, your obligation-to-income ratio should not exceed 36-38%. Divide your total debt by the remaining term of the loan (more than six months) by your total income. This will give you a close estimate however, if the ratio is greater than 50% your plan is not likely to be approved.

17. Assumption
Assumption is the transfer of ownership to a buyer willing to assume full responsibility for the mortgage obligation.

While some loans, including most adjustable rate mortgages (ARM) are assumable without prior approval or buyer qualification, many others contain a "due-on-sale" clause allowing the lender to require the full amount to be paid in full.

Note: Fannie Mae will waive existing, enforceable "due-on-sale" clauses on conventional mortgages (fixed rate or fully amortized) in order to complete a sale and avoid foreclosure.

18. Preforeclosure Sale
A Preforeclosure Sale is when In order to avoid foreclosure, the lender and borrower agree to accept the proceeds of the sale to satisfy a defaulted mortgage even if the sale results in less than the mortgage balance.

In order to be eligible for this option you must be experiencing financial hardship as a result of involuntary reduction in income and an unavoidable increase in expenses that exceed income. Unavoidable causes include:

If self employed, a business set-back
You will have to accept the following conditions:

Listing the property for sale will not delay initiating or continuing foreclosure action, but the terms of the agreement will be honored pursuant to a sale before the foreclosure date

19. Deed-in-Lieu of Foreclosure
You avoid foreclosure by voluntarily surrendering the property by deeding it to the lender as satisfaction for the debt. It is appropriate when . . .

You may be eligible for this option if you meet certain hardship requirements outlined in this document and all junior liens are removed.

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