Mortgage Payments Piling Up? Here Are Your Options
A few years ago, I sent out a newsletter about your options when you are experiencing difficulties paying your mortgage. Because of the pandemic this past year, and recent changes in the law, I thought it was a very relevant topic to discuss once again.
Many people have gone into mortgage forbearance because of Covid and the time to pay is coming due. Others simply stopped making mortgage payments and are now finding themselves in a precarious position now that the foreclosure moratorium will be ending shortly.
This has been a difficult year for so many with loss of hours or loss of jobs completely, having to figure out childcare options, illnesses, travel problems and so much more. Our home should be our safe haven and you do have options whether you plan to stay in your home or not.
Let’s discuss some of the recent trends and options:
Forbearance
If you have student loans, this term might be familiar to you, and it’s the same scenario.
Forbearance is when your mortgage servicer or lender allows you to pause or reduce your payments for a limited period of time. This does not erase what you owe. You’ll have to repay any missed or reduced payments in the future and you will still owe interest.
The types of forbearance available vary by loan type. Under the CARES Act, if you have a VA/FHA (Fannie or Freddie Mac) or USDA mortgage loan, the lender cannot require you to pay a lump sum payment. There is no deadline right now for requesting a forbearance.
If you have a HUD/FHA, USDA or VA loan, the deadline for requesting an initial forbearance is June 30, 2021. Contact the servicer of your loan to begin the process.
Under the CARES Act, borrowers are entitled to an initial forbearance period of up to 180 days, upon a borrower’s request. Also, upon a borrower’s request, the forbearance must be extended for up to an additional 180 days.
Private lenders may offer these options as well and each lender is different.
Here are a few links to some additional information (things change constantly, so please do your own research, as well).
https://www.hud.gov/sites/dfiles/SFH/documents/IACOVID19FBFactSheetConsumer.pdf
https://www.dfs.ny.gov/consumers/coronavirus/mortgage/forebearance_pause_payments
Modification
If you find that you are still having issues or cannot apply for a forbearance, you can apply for a loan modification. In this case, the lender agrees to modify the terms of your existing mortgage by lowering the interest rate and extending the term, thereby reducing your monthly payment. In some instances, the past due amounts are capitalized, or deferred to the end of the loan and need to be paid as a balloon payment. The lender’s financial review is much like the process of qualifying for a mortgage and you will need to produce the same financial documents.
You will also need to meet certain requirements for eligibility like the home being your main residence, proof of a financial hardship and proof you have income that would allow you to pay your mortgage. Tax returns, bank statements, pay stubs, etc. along with a financial hardship letter outlining your circumstances, will be needed. You will receive an answer in 30 days from your servicer.
Repayment
This option is only beneficial if you can afford it, as you will have to pay the designated repayment amount of past due funds on top of your regular monthly payment.
Foreclosure
Facing foreclosure is never easy, but we can help you through the process. In this case, your lender takes possession of your property and you lose any equity. If you are in pre-foreclosure, you have more options if you can pay, sell the property in a short sale (see below) or do a deed in lieu of foreclosure (see below). Contact us to see if we can help you stall the foreclosure or help you with a modification
Short Sale
When your property is worth less than what you owe and the lender agrees to take less to pay off the mortgage, a short sale is an option. All the real estate and attorney fees, transfer taxes, etc. are generally paid from the proceeds, so there is no upfront cost to the homeowner, which is a huge bonus. This can be a lengthy process, but your house can be listed exclusively, so you won’t have signs on your door or in your yard. A negotiator will work with the bank to agree on a fair price for your home and it acts like a regular closing after that. You can even pre-sign everything so you don’t have to attend the closing. One of the drawbacks is if you have extensive judgments, tax warrants or other liens on your property which need to be negotiated and paid off at closing.
Deed in Lieu of Foreclosure
Not everyone is a candidate for this option. If you have a second mortgage or any judgments or liens on the property, the bank will not agree to take back the property. This option is where you sign the deed over to the bank and walk away. The house is considered bank-owned after that and your credit report typically reflects the matter as “paid as agreed,” which won’t affect you as badly as a foreclosure.
All of these options require paperwork, time and energy and Sugarman Law is here to help.
There is light at the end of the tunnel. People are getting vaccinated, returning to work and we are seeing a decline in cases. Now is the time to ensure you are set up for the future by taking care of outstanding debt and getting your estate planning in order.
