Solutions for Your Mortgage Crisis
Are you in financial distress because of your mortgage? Do you need to get out from under a payment that has become too hard to manage - but can’t sell your house because it is no longer worth enough to cover the mortgage balance?
If so, you are certainly not alone. Hundreds of thousands of other Americans are in that leaky boat with you, and there’s no easy way out. But you do have choices, and you should take a look at all of them before deciding what to do.
You can:
- Hope for a loan modification
- Ask for forbearance
- File bankruptcy
- Let the bank foreclose
- Attempt a short sale.
A loan modification sounds the best, but the rules the banks are playing by are both confusing and conflicting. Some say you must not be behind on payments. Others say they won’t consider helping you unless you’re in default.
And some asset managers, sadly, are working hard not to modify loans because it’s more profitable for them to foreclose.
It certainly can’t hurt to contact your lender and see if you are eligible, but please don’t fall for any of the scams that are circulating right now. There are far too many dishonest people willing to collect anywhere from a few hundred to a few thousand dollars from you on the promise of getting your loan modified. In truth, they can’t and won’t do anything you can’t do yourself. If you want help, contact an attorney you trust.
If your problems stem from unemployment, and you have an FHA loan, you can ask for forbearance. Under a law effective August 1, 2011, banks can extend forbearance for 12 months. During that time you may be required to make minimal payments, and the unpaid payments and interest will still be due later, but the bank cannot impose late fees or fines, and cannot start foreclosure. This law may be extended to conventional loans, so do check with your lender.
Another bit of good news about forbearance is that you are allowed to offer your house for sale during this time. This, combined with a sale or a short sale, could provide the relief you need to get back on strong financial footing.
Bankruptcy has helped some consumers. The courts now have the authority to let you keep your home and either forgive a portion of your debt or modify the terms so you can
make the payments. If you’re also buried in medical bills, credit card debt, or other obligations you simply can’t meet, this might be the best solution.
But… bankruptcy stays on your credit report for 10 years and could keep you from moving forward in life. In addition, it places some restrictions on your life that you might find very unpleasant. It might not be the best choice for you.
Foreclosure is another option. You can simply quit making the payments and stay there until they knock on the door and tell you the bank now owns your home. For some this is a chance to live rent and payment free for several months and put away some money for a deposit on a rental home. But again – the effect on your credit rating is dire.
In addition, you run the risk of a huge financial obligation that will follow you around forever. When the bank sells your house at a loss because the market has fallen, they might be able to come back on you to make up the “deficiency” between your mortgage balance and the dollars they collected from the sale of the house.
Creditors can continue trying to collect on a deficiency judgment for 20 years, so this isn’t something to take lightly. This is another area where the rules keep changing, so check this before you act.
If done correctly, a Short Sale could be the best option for you. You list and sell the house for the current fair market value and walk away with no money, but a fresh start. At least, that’s what will happen if you list the house with an agent who is experienced in handling successful short sales.
The truth is, your lender can also come back to you for a deficiency in a short sale. It’s one of those details that must be negotiated with the asset manager and the lender before you sign the closing papers.
Unfortunately, many real estate agents today are listing short sale properties without knowing how to conduct the necessary negotiations, and their sellers are paying the price for that lack of knowledge. In other cases, listings that begin as short sales end up going into foreclosure. Why? Again - because the agent lacked experience and knowledge.
I look forward to hearing from you,
