How to Negotiate the Principle Balance on a Home Loan
If you are facing foreclosure, there are steps you can take to delay or prevent the process. Among these is negotiating the principal balance on your home loan. By working with your lender, you might be able to alter the terms of your mortgage payments and thus prevent foreclosure. A principal balance adjustment on the mortgage will reduce the principal that is owed and thus give you the opportunity to remain in the clear and avoid foreclosure. Work closely with the lender and with the loan modification attorney to see what arrangements can be made. With a little preparation, you might be able to negotiate a reduction in the principal balance and remain in your home.
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Things You'll Need
- Documentation of hardship (this proves your inability to continue paying the loan as is), usually a signed affidavit
- Documentation of income and tax returns; IRS form 4506-T
Instructions
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Prepare your documentation that proves hardship. In legal terms, a hardship that legitimizes a need for a loan modification includes illness, loss of family member and loss of job, among other situations. You will need to show the lender that you have a hardship hindering you from making the full payments and that you need to negotiate a principal balance reduction to avoid foreclosure. Most lenders require a signed affidavit verifying hardship.
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Prepare the legal documentation that is required for any type of loan modification. This includes income statements, pay stubs, recent tax returns and signed IRS form 4506-T. Once you are in contact with the lender, you might receive directions to acquire other legal documentation, but be sure to start with these.
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Contact the lender with proof of hardship and make the request for a principal balance reduction. The ultimate decision is up to the lender, who has full legal rights to require you to continue making the agreed payments, so be sure to present your case clearly and with all required documentation.
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Consult a loan modification attorney, if the lender does not recommend one. The loan modification attorney will work as the go-between to ensure that both parties in the principal balance reduction receive fair treatment.
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Tips & Warnings
Depending on current market conditions, lenders may not always be willing to work with homeowners on negotiating principal balance reductions. As a result, be prepared to be persistent, and make certain that you have genuine hardship that will prove your need for a balance reduction. The loss of value in your home due to market adjustments, while unfortunate, might not be enough to persuade the lender of hardship and the need to reduce principal balance.
