A foreclosure is a lawsuit brought by a mortgage company, condo Association or taxing Authority against a homeowner claiming a default on the mortgage. Usually the default means the homeowner has fallen behind on payments.
Since 2008, the State of Connecticut offers mediation to all homeowners in foreclosure due to non-payment of a mortgage. The goal of foreclosure mediation is to put the foreclosure on hold and to assist the homeowner in obtaining a loan modification or other agreement with the mortgage company, so that the homeowner can save their home.
The mortgage company cannot foreclose on your home while you are in foreclosure mediation. The rules governing the Connecticut Mediation Program have changed effective July 2013. It will be more important than ever to have an attorney representing you that knows the rules.
(For more detail, see Connecticut foreclosure laws.)
Apply For a Loan Modification
In order to apply for a loan modification, you must send the mortgage company an application which is usually available on their website. The mortgage company's attorney will give you the application at the mediation. You must also gather your paystubs, copies of tax returns which must be signed and dated, bank statements, a utility bill and a hardship letter. Your mortgage company will tell you if any other documents are necessary.
(See this article on Hardship Letters for more information on what to include.)
Foreclosure mediation is often the most efficient way to get a loan modification. A mortgage modification is an agreement between a mortgage company and a homeowner to allow the homeowner to save their home and start paying their mortgage again every month.
Usually a loan modification reduces your monthly payments by reducing your interest rate and rolling your arrearage into the principal balance. Many loan modifications also extend the term of the loan. The term can be extended to 30 or 40 years in some cases.
If you are eligible for the HAMP program, also known as the Obama Plan, the mortgage company will reduce your mortgage payments to 31% of your gross monthly income, including real estate taxes and insurance. There are certain cases where banks will reduce the principal of your mortgage loan. This happens most frequently in areas where house values have dropped the most. There have been more principal reduction modifications in 2013 than in prior years.
Principal deferral is another option. Deferral means that some portion of the total mortgage debt is set aside and you do not have to pay interest on that amount. However, at the end of the loan or when you sell the home, the portion that was set aside will have to be paid off.
Important Time Limits
When you receive a foreclosure summons in Connecticut, look at the top right corner of the summons. You will see a return date. You must request participation in foreclosure mediation within 15 days of the return date. You should contact an attorney as soon as you start to receive letters threatening foreclosure. However, even if the return date on your foreclosure summons is months or years ago, your attorney can still ask the Judge to allow you into foreclosure mediation.