BEHIND IN YOUR MORTGAGE PAYMENTS? You Still Have Several Options!
LENDERS OFTEN EAGER TO WORK OUT ALTERNATE PAYMENT ARRANGEMENTS TO AVOID FORECLOSURE ACTION!
When homeowners get into financial trouble, and can't make mortgage payments, several different thought processes play out in their minds. Most initially deny they will run into trouble. They then feel that "some money will come from somewhere" to pay the back payments. When the money does not come, many just take no action - but the delinquent bills keep coming.
Eventually, inaction results in no real ability to catch up. A Victim Mentality takes over - and the borrower has their credit seriously damaged, and their house at risk of being taken away.
For lenders, foreclosure is always a last resort! Being large corporations, they have in-place systems for dealing with homeowners in default. This foreclosure process can only stop if the BORROWER intervenes. Here are some options -
1. REINSTATEMENT involves a borrower paying all past-due payments and fees to completely bring the account current. If a borrower is too far behind, however, this option may not be realistic. Even if a delinquent borrower can find the money necessary to reinstate (by borrowing from family members, for example), the root problem that caused the original delinquency has not been addressed. Generally, a borrower can reinstate only once in a five-year period.
2. FORBEARANCE allows repayment of delinquent debt over an agreed-upon period of time. This might work well during periods of temporary unemployment, or other unexpected bills. Your lender will want to know when the delinquent money will be paid back, and will want regular payments made as scheduled in the future. They will also want verification the lender has the ability to abide by the terms of any forbearance agreement.
3. MORTGAGE MODIFICATION involves negotiating a new loan, rolling in past-due amounts. Sometimes, payment terms could be extended, or interest rates reduced to lower future payments.
4. SELLING THE HOUSE, and moving into a more affordable home, will take care of the original loan delinquency. However, lack of equity in your current home may hamper your ability to purchase a new one. Further, delinquency on your current loan may have negatively impacted your credit score, and a new home loan may be tough to get.
5. SHORT SELLING involves selling your home for less than its mortgage balance. There are many conditions the lender will require here, but it is an option in a weak market where average property values have fallen. Potential buyers must be patient, as the bank's short sale approval process can take up to two months. Separate short sale agreements will have to be worked out with subordinate holders of mortgages against the property.
For short sales, it is important for borrowers to have the bank waive pursuing a Deficiency Judgment for any forgiven debt. Also, ask your accountant to advise you as to your tax liability on this debt forgiven - recent changes to federal law may make this forgiveness non-taxable, but not in all situations.
6. REDEMPTION. This last-ditch attempt to save the house happens AFTER foreclosure occurs. In Illinois, a foreclosed borrower has a 30-Day Redemption Period after the Foreclosure Sale Date, to bring their payments current, and avoid losing their home.
7. BANKRUPTCY. This extreme step will kill your credit for at least seven years, in most cases. Although it will temporarily stop bill collectors from calling, and give you some time to restructure your debt, it is not a permanent solution. It is possible a lender can petition the court to allow certain foreclosures to proceed, even though bankruptcy has been filed.
In any event, most delinquent borrowers have options other than simply waiting for foreclosure. If you seem to be having trouble keeping up with your mortgage payments, please let us know, and we'll try to help.
Please see Mary Umberger's column in the April 13th edition of The Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
