Because of the millions of foreclosures homeowners faced during the recession, the federal government and the mortgage companies developed a variety of options for restructuring home loans to make them more affordable. When people fall behind in their mortgage payments, it is often very difficult to bring them current. That is why the capitalization of missed mortgage payments was developed as one type of mortgage debt settlement program.
Usually people miss payments because of financial stress such as unemployment or medical bills. If you allow even one payment to fall behind the mortgage company has the right to declare you to be in default, and that is the first step toward foreclosure. The sooner you work with the mortgage company the easier it will be to find a solution.
Mortgage companies are often willing to work with the homeowner to find a way to prevent the foreclosure. A loan modification is a possible solution. The modification can take several different forms including lowering interest on the loan to make payments more affordable or capitalization of the missed mortgage payments.
Capitalization of missed mortgage payments is also called capitalization of arrears. In a loan modification which capitalizes mortgage payments in arrears, the missed payments are added back to the loan principal and the payments are recalculated. Often the mortgage company will also add late charges and other related fees.
This is not a solution that works for everyone who is behind on their payments. You should seek the advice of an attorney before agreeing to a capitalization of arrears loan modification. The new mortgage payment must be paid in full each month, and if you are unable to make the new payment the result is that you will end up with missed mortgage payments again. You also must be able to begin making the new payment right away.
If this is a workable solution and your financial problems are temporary, then this type of loan modification will bring you in good standing with your home loan and the foreclosure process will stop.
It is important to consult an attorney when working with a mortgage company to obtain a loan modification to insure your rights are protected. Many of the mortgage companies are behind in processing loan modification requests and in the meantime the foreclosure process continues. An attorney can advise you on the best way to structure your loan modification for long term success while also insuring your rights under the law are protected.