Mortgage Loan Balance vs Mortgage Loan Payoff

This has come up several times lately…

When working to determine the equity in a home to be sold or a payoff amount when one spouse wants to buy out the other you will want to understand the payoff amount and how that can be different from the loan balance on a mortgage statement.

The payoff amount is how much you will actually have to pay to satisfy the terms of your mortgage loan and completely pay off your debt. Your payoff amount is different from your current balance. … Your payoff amount also includes the payment of any interest you owe through the day you intend to pay off your loan.

In addition to interest, the are other fees that may need to be paid to satisfy the loan, the biggest one being a balance of the loan that was “forgiven” in a loan modification.

We’ve found that homeowners whose second mortgage was “forgiven” during a loan modification often forget that the money will still be owed upon sale of the house. These second mortgage lenders stop reporting the debt to the credit reporting bureaus, but it does still exist and is owed.

Loan modifications often create yet another debt. The method used to lower the borrower’s payment was to defer a portion of the principal and amortize only the remainder. Some borrowers thought that deferral meant forgiveness
of that debt, which it does not. The difference in the actual amount owed and the amount reflected on the loan statement may be significant.

We recommend that attorneys revise their intake sheets to ask if the divorcing couple has ever done a loan modification, taken out a second mortgage or home equity line of credit, has taken out a Hero or a Pace loan,
and if there are any other possible liens against the property.

While the couple may feel they have sizable equity in the home, it may be that once the actual numbers are calculated they may not have enough to pay
their attorney fees or their real estate