Principal reduction is the process wherein the Lender agrees to take less than the borrower’s full obligation to the Lender on a permanent basis. Principal reduction is extremely rare. Lenders rarely if ever forgive principal on first mortgages in Connecticut. Don’t expect or demand principal reduction, as Lenders very rarely entertain it and often find it a very off-putting and unreasonable request.
Any type of principal reduction is always very rare and only normally done by cash settlement of defaulted second mortgages in circumstances where the value of the house is far below the size of the mortgage. Principal reduction is most likely to occur through negotiations if the borrower can make a substantial cash payment in exchange for a release of a second mortgage. Principal reduction on second or junior liens or encumbrances is available under Bankruptcy Law or through a settlement process for a reduced one-time cash payment at a discounted number related to the value of the house. It takes experience, specialized legal/bankruptcy counsel to assure the best results in principal reduction. Homeowners in trouble rarely have the cash available for this option, nor would they be well-served to utilize such an option since other non-cash offers are often legally available under Bankruptcy protection.
Principal reduction is generally reserved to circumstances that involve government assistance to the lender and a secondary benefit to the borrower. Principal reduction rarely if ever saves homeowners in trouble.
Don’t Expect or Demand Principal Reduction
Most modifications do not come in the form of principal reduction to troubled residential mortgages and an insistence on this type of relief by the borrower is likely to undermine the entire mortgage modification process.
Expecting or demanding principal reduction on a first mortgage is very unlikely to be acceptable to any lender. It was once more available when government programs rewarded Banks and Lenders with payments to the Bank in exchange for granting forgiveness to homeowners. This was rare then and not available now. A Borrower’s request for forgiveness needs to come in the form of a change in rates or terms of the loan.
Requesting appropriate and customary relief with a specialized attorney and a proper request for likely attainable outcome is the best approach with all Lenders in all Mortgage Modifications.
Don’t fall victim to an unfair and predatory Mortgage Modification. Get smart. Get legal representation.
Contrary to principal reduction, almost every Mortgage Modification creates increased principal, not principal reduction. As novice homeowners without specialized legal representation try everything to save their homes, they also fall victim to unfair and predatory Mortgage Modifications.
These are Modifications that drastically extend the term of your mortgage, usually to forty (40) years with a new amortization that greatly benefits the Lenders and puts the borrower into a hugely more expensive long-term loan. It creates homeowners who will never own their homes. They’ll struggle for years, if not decades, as they tread water and never get ahead, create equity, or own their home.
To learn more about Principal Reduction vs. Mortgage Modification, call our experienced team of CT mortgage modification attorneys at 203-230-2233 and speak directly with our attorneys on your options during the Mortgage Modification process at one of our location in Hamden, Connecticut; New Haven, Connecticut; Waterbury, Connecticut; Rocky Hill, Connecticut; Ridgefield, Connecticut; and Bridgeport, Connecticut.