Photo by Kevin Dooley
The most common problem people come to see about is foreclosure. Knowing you might lose your home in foreclosure is scary, but there are a lot of ways we can help you get back into good standing on your mortgage so we can keep you in your house. In this post I run down some of the options out there:
1. Try for a loan modification. In our opinion, most of the loan mod programs out there are nearly worthless. HAMP can be a good fix for a homeowner behind on payments, since it reduces monthly payments AND puts your loan back into good standing. But since there’s no way to force lenders to comply with HAMP, most people are left out in the cold (and pushed into foreclosure). It’s been very rare to see a homeowner get a HAMP modification, but that doesn’t mean you shouldn’t try it, hoping to catch the right person on the right day and catch a lucky break.
As for the lenders’ “internal” modification programs, your guess is as good as ours whether you’ll qualify. Since the criteria and terms of these mod programs are usually secret, you’re at the lender’s mercy. So if you go this route, negotiate and negotiate hard. Even though the customer service rep on the phone might not realize it, the bank is probably going to lose a lot of money if they foreclose on you. Show them why. It might be helpful to order an appraisal–if the lender knew your house was $100,000 underwater, they might not think it’s such a good idea to kick you out of it.
2. Don’t hire loan modification sleazeballs. If foreclosure is the number one problem we see in our office, 1A is people who have paid sleazy loan modification outfits to help them stay out of foreclosure. These programs are expensive, and most of the time they just don’t work. In particular, stay away from: 1) out-of-state companies (it’s harder to get your money back), 2) companies that tell you to stop making your mortgage payments; and 3) for-profits that ask for a large up-front fee without telling you what they can do for you or how they can do it. So many people get caught up in these scams, and it only creates a bigger mess to clean up once the scammer runs away with the money and leaves you right where you started or worse.
3. Consider Chapter 13 reorganization. Chapter 13 is a way to force a lender to accept repayment of your arrears over time. It’s ideal for the person who missed a bunch of payments, but now has the income not only to make the payments, but also to catch up and stop foreclosure. Chapter 13 allows you to pay your mortgage arrears in equal installments over a three- to five-year period. It can be surprising when a lender refuses to let you catch up on your mortgage, even when it knows you have the income for it. This way you can call the shots and force them to accept your money.
4. Strip off your second mortgage. If you didn’t have to pay your second mortgage, could you afford to catch up on your mortgage? As of earlier this year, in a Chapter 13 reorganization we can strip second mortgages (and third mortgages, and fourth…) where the value of the house is less than the balance of the first mortgage. It’s called lien stripping. To do this, we need an appraisal to prove the value of your home. Once we can prove that your second mortgage is fully unsecured, we can strip the lien in Chapter 13.
5. More people have just been moving on. If you can’t afford your mortgage payment, can’t qualify for a modification, and bankruptcy won’t help your situation, it’s time to make some hard choices. If you have an underwater house, meaning you have no equity, what do you really own? And if you have to pay $10,000 just to get back into good standing, is it really worth it? If you decide to abandon a home to foreclosure, you can usually live in the house mortgage-free for at least six months while the foreclosure runs its course. For many of our clients, this is just enough time to save up some money to make the transition to a new place to live comfortably. And if you have a second mortgage that won’t go away in the bankruptcy, well we can usually wipe that out in Chapter 7.
Have questions about what to do with a mortgage about to go into foreclosure? Give us a call for a free consultation.