Op-Ed: Alternatives to help you to keep your property
Author Maricarmen Nevado is manager of the Loss Mitigation Division at Banco Popular
The economic situation that has enveloped the island in recent years has a direct impact on the lives of thousands of Puerto Ricans. Among the various consequences this situation can generate is that many families have trouble making payments on their debts, including mortgages.
It’s precisely because of this situation, that it’s essential to know what the steps are and how the process of loss mitigation works if this were to happen to you.
The loss mitigation process can start in different ways: through a phone call, written communication or a visit from a representative. There are no specific terms for guidance on this process. It can start from day one when you notify the bank that you have problems that limit your ability to pay monthly or you may already be behind on your monthly payments.
Communication
The main goal of the bank, when trying to contact the client, is communicating with the debtor, understanding their situation so together they can explore the options. Sometimes, whether out of fear or not knowing how to cope, people avoid the calls or other approaches from their mortgage bank, thinking that ignoring the situation can be a solution, at least in the short term.
This is not recommended under any circumstance, as banks have loss mitigation programs that may offer a temporary relief while the debtor’s financial situation returns to normal. Even if your mortgage is not behind on payment, but you know you will face economic problems, you should contact your bank as soon as possible.
The interest of the creditor is to reach a payment agreement because both parties benefit, the client can meet in what their capacity allows, and the creditor because they receive the payment due. It’s important to note that, the sooner you contact your bank, the greater the possibility of finding a solution to the problem.
Available alternatives
The loss mitigation program provides retention and disposal options. Retention options are offered to customers who can prove an ability to pay and retain an interest in property. On the other hand, there are options available for customers that do not have the ability to pay to retain the property, or don’t have an interest in keeping it.
Each case is individual, and the use of these alternatives will depend in large measure on the current financial situation of the client, the type of loan (investor, insurer or guarantor), how backed up the payments are or the legal stage of the case, among others.
Retention options
Special Forbearance: Reduction or suspension of payments for a period of time determined by the investor, insurer or guarantor. This gives the debtor time so that they can overcome the situation that prevents them from continuing with the mortgage payment.
Payment Plan: A payment agreement that requires the client to make their regular payment and an additional portion to be credited to the delayed payments, for a specified time. The payment plan allows the borrower to bring the account up to date, without altering the original terms of the mortgage loan.
Modification: Restructuring of the original loan terms such as: changing the balance of the principal, the interest rate or extending the original terms. The type of modification to be applied will be directly tied to the wishes of the investor, insurer or guarantor. By modifying your mortgage loan, it is updated with a low cost option.
Disposition Options
Short Sale: Total cancellation of the mortgage loan with a lower portion of the balance of cancellation. The sale price depends on the current market value of the property. The terms depend on the applicable guidelines. This option allows the debtor to sell the property even though the value of this does not cover the total mortgage debt and prevents the property from deteriorating through an extensive process of implementation.
Deed in Lieu: Transfers the title of the property to the investor in exchange for the cancellation of the mortgage debt. Like all options under the loss mitigatioin program, the terms of this transaction will depend on the investor, insurer or guarantor. The deed in lieu avoids a lengthy and costly execution process for both parties.
Banks have a genuine interest in looking for options so you can keep your property. Therefore, when a loss occurs in family income or any condition arises that may affect your mortgage payment, you must act promptly, notify your bank and carefully provide the documents required so you can start with the process under the program.
