Is the Cost of Mortgage Litigation Worth It?

By: Timothy McFarlin | Published: May 18th, 2010 | Category: Mortgage Litigation

Many people wonder if the cost of pursuing mortgage litigation as a way to avoid foreclosure is worth it. Individuals facing foreclosure are already in debt of some kind and wonder if the cost of a professional attorney to take their case to trial is a wise investment. Most individuals pursue mortgage litigation once their lenders have refused to provide assistance by way of a loan modification or short sale approval. While attorneys can be expensive, the loss of a home can be more expensive in more ways than one.

The purchase of a home is the single most important investment that many people will make in their entire lives. Even though the housing market is in a bit of a slump right now, this isn’t the first time that the values of homes have been on the decline. While physics teaches us that what goes up must come down, real estate is quite the opposite. Historically, homes often increase in value after a depression or recession. Even though a person’s home may be worth less than what they paid for it today, the value of a home is almost guaranteed to rise once this recession is over. This means that homeowners with enough patience will most likely profit if they can wait out the current housing slump. While the cost of an attorney could be in the thousands, a homeowner who is able to keep their home might be able to see a profit of hundreds of thousands of dollars in a decade or two.

The good thing about mortgage litigation is that taking a lender to court will not negatively impact a credit score. Lenders can’t report an individual to credit bureaus just because they decided to take them to trial. Lenders may, however, report to credit bureaus if a loan is in default. The longer a loan stays in default and the more money that goes unpaid, the more damage that can be done to a credit score. This means that individuals who take no action to save their home will see more of a hit on their credit score than those who seek a swift end to their trouble.

Most lenders understand that the cost of allowing a borrower to take them to court can cost them more money than reaching a settlement, so many lenders may be more inclined to negotiate a reasonable out of court settlement after they are served with a document requesting their appearance in court. In most cases, an out of court settlement would be in the form of an offer to modify a loan to a more affordable rate for the borrower. If the borrower is pursuing a short sale, a settlement may also come in the form of approval to do so.

Most borrower also forget the fact that they will be responsible for all of the expenses related to moving out of their foreclosed home and into a new home or rental property. If the house is allowed to be foreclosed on, this may be difficult, since the presence of the foreclosure on the person’s credit report will make many new lenders and landlords weary. Most victims of foreclosure are required to pay higher deposits or down payments to put their lenders / landlords at ease. Not to mention the cost of a truck rental, fuel, and moving crew. None of these expenses are covered by the lender when they decide to evict the homeowner.

When a person allows their home to fall into foreclosure, they are basically starting back at square one. They must work to build their credit and, if a new home is purchased, must start all over with a new loan. This seems pointless if the services of an attorney can negotiate an affordable loan modification program on behalf of the borrower that keeps both borrower and lender happy. Attorneys who specialize in real estate and finance law understand that their clients are already facing financial hardship, and many will allow some or all of their services to be paid off over time. If an attorney is able to shave a few hundred dollars off of a monthly payment, the borrower can use some of their savings to pay off the services of the attorney and tuck the rest away for a rainy day. Not to mention the fact that they get to stay put and keep their initial home investment safe.

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