Depreciating Home Value During a New Jersey Foreclosure

Most individuals who have fallen behind on their mortgage payments or filed for bankruptcy quickly become intimately familiar with the many complex rules that govern the foreclosure process in New Jersey.  Judicial foreclosure proceedings are lengthy, which works in favor of many borrowers because it allows an opportunity for the borrower to catch up on payments or attempt a mortgage modification.

However, depreciating home value during a New Jersey foreclosure can throw an added complication into the mix if you have been considering a mortgage or loan modification as a potential alternative to the foreclosure process. If you want to learn more, seek the services of a hardworking foreclosure attorney that can answer your questions.

Impact of Depreciation on Home Values

The general concept of depreciation can be valuable from a tax standpoint, but it can have a negative impact upon a homeowner’s options when facing foreclosure.  Difficulties can arise when the value of a borrower’s home depreciates so that its fair market value is less than the amount the homeowner owes on the mortgage.

While many taxpayers welcome the annual depreciation tax deduction, depreciating home value during a New Jersey foreclosure can actually make it more difficult for the homeowner to obtain a mortgage modification or home equity line of credit that could allow the owner to catch up on missed payments.

Further, in some cases the mortgage lender may be able to seek a monetary judgment against the homeowner to make up the difference between the amount of the home’s value and the amount owed on the mortgage.

Depreciating Property and Mortgage Modifications

Many homeowners who are facing foreclosure may seek out a mortgage modification as a potential solution to bringing their mortgage current, whether within the bankruptcy process or without resorting to bankruptcy.  A mortgage modification can work to:

  • Amortize past-due amounts. Mortgage modifications often work to amortize the past-due mortgage payments over the remaining life of the mortgage.  This essentially increases the size of each remaining monthly payment, because the past due amounts are divided among those payments.  For borrowers whose financial difficulties were only temporary, this can provide a viable solution.
  • Increase mortgage term. Some modifications add the missed payments on to the end of the mortgage term, thereby increasing the total mortgage term while keeping monthly payments the same.
  • Reduce interest payments. In some cases, the mortgage lender may be willing to reduce interest payments to bring them more in line with prevailing interest rates in the market, especially when the borrower purchased the home when interest rates were very high.
  • Reduce the principal balance. In very rare cases, a mortgage lender may agree to reduce the total principal due on the mortgage to reduce monthly payments.  This option will likely only be available in a severe market downturn where the lender would not otherwise be able to sell the house through the foreclosure process.

Depreciating home value during a New Jersey foreclosure can complicate the process of obtaining a mortgage modification, primarily because the reduced value of the home must be taken into account in considering the borrower’s options.

Talking to a New Jersey Foreclosure Attorney for Guidance Today

An experienced foreclosure defense attorney can explain the more nuanced issues that can arise because of depreciating home value during a New Jersey foreclosure.  The judicial foreclosure system in New Jersey offers many different avenues that you can explore to potentially bring your mortgage current and redeem your home.

Contact an attorney early in the process to protect your rights throughout the foreclosure process.