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14. State Loan Modification Programs

Foreclosure processes vary from state to state, and homeowners faced with the possibility of facing foreclosure should find out how the process works in their state. Each state also has resources that homeowners can draw upon. Some resource for specific states are listed at the bottom of the page.

Before trying to obtain a loan modification, there are two pieces of information that a homeowner will need, as this will give them an idea of how to proceed with a loan modification. They need to know: Whether they are in a judicial or non-judicial foreclosure state. States where the foreclosure process goes through the court system is called a Judicial Foreclosure State. States where the foreclosure process is handled independent of the court system is called a Non-Judicial Foreclosure state. Some states use both processes, and a foreclosure could go through either one.

Loan Modification processes are handled similarly in both judicial and non-judicial foreclosure states. What instrument was used to convey title to the property. This can be either a mortgage, or a Deed of Trust.

Judicial or Non-Judicial Foreclosure State

Individual states have specific procedures for handing foreclosures, and understanding which type the borrower would be working with, should the property reach foreclosure, is important.

Although loan modifications are handled similarly under either process (judicial or non-judicial), in Non-Judicial Foreclosure states, especially those that use Deeds of Trust (see below for detail), the process normally moves much more quickly than in Judicial Foreclosure states.

Foreclosure sales may occur in Non-Judicial states in as little as 90 days from the date that the first payment was missed. Typically though, lenders, especially in times of low real estate prices, who may have been accustomed to re-selling properties quickly are more willing to work with borrowers, knowing that reclaimed properties are sitting longer.

Typical foreclosure processes in Non-Judicial foreclosure states take 5-7 months, whereas the process in Judicial foreclosure states takes from 6-19 months, as all phases are handled through the court system.

All of this reinforces the idea that borrowers should contact their lender as soon as they know that there might be challenges making their mortgage payment . Whether a loan modification, or some other solution is best for the borrower, the borrower needs to open the lines of communication with the lender.

To find out if they are in a judicial foreclosure state, they can either call the county, or other governmental body that records property transactions.

An online resource is: http://www.realtytrac.com/foreclosure-laws/foreclosure-laws-comparison.asp

Mortgage or Deed of Trust

In many states, a property sale is more likely to be handled by a Deed of Trust instead of a mortgage. With a Deed of Trust, a trustee, who is independent of either the lender or borrower, is assigned at the time of closing. The trustee, sometimes a title company, holds what is called the “Power of Sale.” As far as foreclosures go, a Deed of Trust is handled much like a non-judicial foreclosure, except it is the trustee (who is independent of the buyer and the lender) has the authority to instigate the foreclosure, instead of the lender. In the event of a default on the loan, the trustee files a Notice of Default. Once the notice of default has been recorded for 90 days, the trustee, or someone that it assigns, can sell the property, often on the steps on the courthouse. To find out how title was conveyed to them when they either purchased or last refinanced the property, they should look through the paperwork that they received at the closing, or call the lender. The terms Mortgage, or Deed of Trust will be clearly labeled on the documents.

Modification and Foreclosure Resources

The following is information for some of the most populous states, and those most affected by the housing market collapse of 2007-09. They are a useful starting point for homeowners in financial difficulty. Other states have similar resources that can be found online.