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Answer:
Last week, we answered a question from a BuyandHolder about handling taxes when you sell your house – whether you are forced to sell or you have made a decision to live elsewhere. This leads us to a closely related real estate topic – one the entire nation is concerned about – foreclosures.
You’ve seen the numbers. They are most upsetting, with thousands of Americans selling their homes because they cannot make their mortgage payments. However, knowing the facts about one’s mortgage and lender gives homeowners significant leverage for negotiating their way out of foreclosure.
If you are falling behind on your mortgage, fear you will be, or know someone who is in arrears, here are the first steps to take.
Contact your lender
Do this immediately. You’ll find the telephone number on your monthly statement. Don’t delay making this call by one month, one week or even one day! Lenders who never hear from those facing payment problems are forced to take legal action, action which can result in foreclosure. In fact, once you are three or more months behind, your lender is likely to hand over your loan to an attorney who in turn will initiate foreclosure proceedings. At this point, you would be in serious danger of losing your home.
Calling your lender, in fact, is absolutely the most important thing you can do! Keep in mind that lenders are in the money business, not the real estate business. They would rather help you keep your home than get stuck with a problem piece of property -- one which they then would need to unload, and at a financial loss. Therefore, the vast majority of lenders will in fact help you come up with a solution.
If you think about the situation from the lender’s viewpoint -- that the organization doesn’t want to wind up with your house -– it should give you courage and mental leverage for negotiating a solution.
Why you are behind making payments
Your lender will want to know if your financial crunch is temporary -- you’re out of work for a while but will be able to make regular payments once you find a job. Or, you’ve had a major illness or injury but will be able to return to full-time work within a few months.
Perhaps you have a longer-term problem, such as a permanent disability and so you are unable to pay your bills. You may be among the thousands of consumers who have maxed-out on your credit cards and consequently you’re heavily in debt.
Be honest with your lender. Don’t fudge -- you may be asked to document the reason you are having difficulty paying your mortgage and it won’t help your case if you haven’t told the truth.
Make a plan
Prior to making that first phone call, however, it’s wise to have a concrete plan in mind. You plan might include:
1) The dollar amount that you can afford to pay every month
2) If you’ve lost your job, details about how you are actively looking for a new one.
3) Information regarding part-time work that you are already doing or plan to do.
4) Details about your spouse’s job or that he/she is looking for work.
5) Help from your family.
Among the “loan modification options” the lender (or you) might raise:
- A lower interest rate (permanent or temporary)
- Extending the length of the mortgage (possibly to 40 years)
- Deferral of principal (often at zero interest)
- Making up missed payments via a plan devised specifically for you.
Keep a written log of all conversations with your lender, including the names of those you speak with, the dates and a summary of the comments made. And keep copies of all e-mails and written correspondence.
Documents your lender may want
Before calling your lender to negotiate a loan modification, line up these documents:
- Your net worth statement
- Your monthly expenses
- Unemployment records
- Paycheck stubs
- Social Security statement
- Your last tax return
Note: In some cases, lenders ask homeowners to write and sign a “hardship letter” explaining their situation.
If you are nervous
It’s natural to feel uncomfortable talking to your lender. However, don’t bury your head in the sand and pray the situation will go away. It won’t.
Instead, for help and reassurance, contact a nonprofit mortgage counseling agency...but only one certified by the U.S. Department of Housing & Urban Development (HUD). To find one in your area, call: 800-569-4287 or visit: www.hud.gov/foreclosure. These counselors will help you develop a plan to avoid foreclosure -- for free or at minimal cost.
Also check with the Home Ownership Preservation Foundation at: 888-995-HOPE, www.hopenow.com. Known as HOPE, this organization not only helps homeowners remain in their homes but also provides free credit counseling.
Caution: There are lots of phony “counseling agencies” out there, preying on people facing foreclosure. They promise great and immediate results. Don’t go down this path. Instead follow the advice in the above two paragraphs.
Stay tuned… Next week we’ll tell you about other sources of help and the advantages of making what’s known as a real estate “short sale.”
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