Existing debts become more pinching when there is no more debt available in the market to reverse older repayments. This becomes a problem for everyone, involved in raising loans after loans. But usually a time comes, when it becomes necessary for a person to stop and think about repaying the loans that already exist instead of going for a fresh one. Mortgage loans can inflict difficult times for borrowers.
Since in a mortgage loan, the property of the borrower is mortgaged, the bank or the financial institution from where the loan was taken has the right to seize the property of the borrower any time. Besides, mortgage loans have many other finer details that had been missed by the borrower while agreeing to the loaning terms and conditions. These start emerging when the borrower fails to make the repayments.
Once, the borrower defaults upon making repayments, the bank charges a number of bank fees that can include default charges, late payment fees etc. Sometimes, banks can also raise the rate of interest as a kind of punishment for the borrowers for failing to make the repayments. This is in addition to their right to seize the property that has been mortgaged as part of the mortgage loan agreement between the borrower and the bank. The bank can sell off the property and keep the full amount, in addition to all the previous payments of the borrower along with the interest. This could sometimes exceed the total amount of the principal amount as well as the interest amount.
Nevertheless, in many cases, the banks also face a loss when they seize and sell the property of the borrower which has been mortgaged. If the property fails to fetch a good amount of market price, the bank cannot recover the full amount of the loan. The bank has to document this in their annual statements, which gives the indication that the bank has faced a loss. To tackle such situations, where the lending institutions as well as the borrower are both losers, third party agencies intervene for effectuating a mutually convenient deal.
Borrowers can seek stop foreclosure, which prevents their property from being sold off by the bank. The stop foreclosure is also in the interests of the banks when they come to know that the market price of real estate has fallen down and they cannot recover the full amount of the loan given. The stop foreclosure is agreed upon certain terms and conditions, which lead to loan modification. Under the loan modification, the agreements and documents originally exchanged between the bank and the borrower are changed.
New agreements are drawn between the bank and the borrower under the loan modification agreement and the terms and conditions fixed earlier undergo some relaxation for both the parties. The mediating party plays an important role in this context and acts as the chief negotiation for both the bank and the borrower. Such agreements helps borrowers relieve from any seizing of the property by the bank.