Q: During the real estate bust, my mother entered into a loan modification with her lender, and her payments were greatly reduced. Now, almost 10 years later, she is selling her home, and the lender says it's entitled to 20 percent of the proceeds. Is this legit?
_Gina
A: The goal of loan modifications was to lower mortgage payments to make them affordable for struggling homeowners. Lenders had a variety of tools they used to accomplish this. Several lenders offered a program for people whose mortgages were significantly "underwater."
The lenders would reduce the loan balances to market values, with the requirement that the borrowers give back some of the sales profits when the values increased. This is called a "shared appreciation" modification, and it is legitimate.
While this may be hard to swallow now, remember that this tool helped your mother avoid foreclosure during a devastating housing collapse. It sounds as if having to share the proceeds with the lender was more than worth it. But be sure to review the loan modification paperwork and the loan payoff statement for accuracy prior to closing.
