Anything can happen at any time and suddenly, you can’t pay your mortgage. It’s a scary thought. And it can happen to just about anyone. Most recently with the government shut down, people missed several paychecks and if they didn’t have savings to pull from, many became late on payments to the mortgage lender and other creditors.
Let’s face it, even though we all wish we had a 6-month cushion in our savings, it doesn’t always happen. There are many reasons why the mortgage check isn’t getting paid, off work due to an injury, getting laid off, flooding, an impending divorce, etc. But whatever the reason, it is likely that you or someone you know may be facing default on your mortgage. Rather than choosing to not face the problem head-on, now is the time to discuss your options with Sugarman Law.
First, what is considered late?
Typically, you have a 15 day grace period built into your mortgage. If you need to go past those 15 days, you will need to pay (typically) a 2% late fee plus your regular monthly payment. Look at your statement for specific details. Don’t stress if you just need a few more weeks, it’s already there for you. Even if you are consistently one month behind, generally you won’t go into foreclosure just yet (although you may receive constant telephone calls from your lender).
But, be forewarned that if you fall more than three months behind, typically your mortgage company most likely won’t accept anything but the full past due amount, plus penalties, to stop from going into active foreclosure. And you might already be receiving notices of default from your lender. This is the time to take action and call me. We will provide you with an in-depth analysis of the options available to you and hopefully give you some peace of mind.
However, if you find yourself in this position, here is a general overview of some of your options:
Modification. This is a good route if your hardship issues are short-term, you are less than 6 months behind and you have equity in the house. Even if you have been served with foreclosure papers, this could still be an option. Essentially, a modification means that after an extensive financial review, the lender modifies the terms of the existing mortgage by lowering the interest rate and extending the term, thereby reducing your monthly payment.
Imagine it as if the lender tries to stretch the payment into something you can afford according to your debt-to-income ratio, and allows you to pay off the mortgage within a certain period of time. 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. Some of the documents we need are two years of signed tax returns, two months of bank statements, two months of pay stubs, the bank statement for the loan, recent utility bills, profit and loss statements if you are a business owner, etc. The bank will look at your case to determine if your hardship warrants a modification. Every person, every loan, every lender is different. So even if you know someone who has done this with success, it doesn’t mean the process will look the same for you. Even the timeframe differs, it’s typically a 60-90 day review time, but I have seen modifications take longer.
Short Sale. If your house is underwater you can consider a short sale. A short sale is when the property is worth less than what is owed on the property and the lender agrees to take less to pay off the mortgage. 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. 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. A negotiator will work with the bank to agree on a fair price for the 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 and your credit report typically reflects the matter as “paid as agreed,” which won’t affect you as badly as a foreclosure.
If you are planning on going any of these routes, the first thing to know is do not be afraid. You have options, you have people that can support you and help you understand all you need to do. Be ready for the bank to start calling and asking for money.
There are also other debt relief options, like filing for bankruptcy. Every situation will be different. Talk to trusted advisors.
We offer a free 30-minute consultation at Sugarman Law, P.C. to discuss your situation and what route would best suit you. Email us or call to schedule.