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With mortgage delinquencies and foreclosures on the rise, more people than ever are being forced to learn about the foreclosure process. While it is best to communicate with your lender before missing a payment, often that does not happen. If you want to avoid foreclosure, communication with your lender is one of the keys to keeping your house. While you may be scared or embarrassed to talk to your lender, avoidance is going to create more problems for you in the long-run.
Talk to the right people at your mortgage company: As much as you would like to brush this situation under the carpet, you must return the calls and respond to the letters from your mortgage company. Most mortgage companies have two layers of customer service employees dealing with delinquent mortgages. The collectors will contact you first, and their job is of course to collect the past due amount. They are generally not interested in finding a long-term solution for your problem. Unless you can pay off the past due amount in full and continue making your regular mortgage payments as scheduled, they are not going to help you. The loss mitigation department will negotiate with you to help you keep your house and avoid foreclosure. Some lenders may call this the foreclosure prevention team or the loan resolution department. While the collectors may not be eager to transfer you to the other department, you need to be persistent and ask for someone with the authority to renegotiate your loan. Long term solutions will not be met by collectors, only by those who have the authority to work with you on the terms of your loan.
Be prepared to tell your story: When you are able to talk to the loss mitigation specialist at your mortgage company, it is important that you have all the relevant information and an explanation for your delinquency. Your lender will want to know if the financial problem that caused the missed payment is a short-term or a long-term problem. Explaining your situation will help the lender understand where you are coming from and the root cause of the problem.
Short-term problems can be caused by a number of things, such as short-term illness or injury, a temporary lay-off with your employment, or excess bills in other areas of your life, such as a major car repair. These examples do not affect your long-term earnings, and are more hiccups in your financial picture. Short-term financial problems can usually be repaired, and your lender will not want to loose you as a customer.
Long-term problems can be loss of a job, permanent disability, divorce or the death of a spouse. In these situations your income status is unknown and possibly permanently reduced. Under these circumstances, you may be less likely to remain in your home. However, there are still a few options to discuss with your lender.
Provide documentation to your lender: Your lender in the case of a negotiation is going to want many of the same financial documents necessary when your loan was first approved. Gather your pay stubs, bills and bank statements for the last four to six months and tax returns for the last three years. If your inability to pay your mortgage was related to an emergency situation, such as medical bills or a large car repair, gathering the evidence of this expense and payment will validate your situation. Your lender will need to evaluate what you will be able to pay in the future before offering you a negotiated term. If you are expecting a change in your income status, such as receiving long-term disability payments, alimony or life-insurance proceeds, your lender will want to see the documentation. You and your lender will want to avoid being in this situation again, so an honest and accurate reflection of your financial picture is essential. Also, keep all communication with your lender, including the post-marked envelopes. Having all of this documentation could help you during the negotiations.
Know your options: Mortgage lenders typically do not want to foreclose your home. It is expensive and they lose a client. Keeping your business is in their best interests if you can make payments. There are several options your lender will consider.
If your situation is short-term, and you are now able to make your mortgage payments in full, but have an arrearage, you will want to consider a payment plan for the delinquency. This is called forbearance and allows you to catch up your back payments without changing the underlying terms of your mortgage. Often a small amount can be added to your mortgage payment for a specified time, often up to 36 months until you are caught up. When negotiating forbearance, ask that the past-due amount be interest free. Only make this agreement if you will be able to support the current mortgage payment, plus the additional amount. If you are concerned about your ability to maintain this arrangement, or your problem is long-term, you will want to consider a modification of your mortgage.
There are several options when modifying your mortgage with your lender, which will depend on your personal situation. If you are unable to pay your mortgage because of a change in your financial situation long-term, communicate with your lender what you are able to afford. Sometimes the term of your loan can be extended, reducing your monthly amount due. For example, if you have paid 10 years on a 30 year note, the remaining balance due can be re-amortized on another 30 year term. This can reduce your monthly payment significantly. If you are facing an interest rate hike due to an adjustable rate mortgage, ask your lender how to convert your mortgage to a fixed rate you can afford. While some of this is akin to refinancing, if you work with your current lender they can sometimes waive or reduce your closing costs and fees. They may be willing to work with you whereas a new company will not want to take on the risk.
If you know you will be unable to make reasonable payments on your home in the future, selling the property may be your only option. Of course, if your home value is greater than your debt, you can pay off your loan in full with the proceeds of a sale. You can ask to negotiate an interest-only payment with your lender during the listing period. However, if you have not been in your home very long, or because of changes in the home values find yourself in a situation where the current value of your home is less than the amount owned to your lender, you will need to negotiate with your lender. Two options exist, a short-sale or a deed in lieu of foreclosure. In a short-sale situation, you will not receive any proceeds from the sale of the home. The lender will receive all of the proceeds and write-off the remaining mortgage debt. The lender will be in control and will likely approve any contracts for sale. In a deed in lieu of foreclosure, you will sign over the deed to the lender. They take possession of the home and your debt is released. Many lenders do not want to get in the real-estate business, and do not offer this option. While neither the short-sale nor the lien in lieu of foreclosure are ideal and will adversely affect your credit rating, they will keep you out of foreclosure and possible bankruptcy.
Get advice: There are several options for homeowners facing foreclosure to get financial advice. Non-profit organizations through your local housing counseling agency or credit counseling agency can help you evaluate your situation; the offers presented by your lender and possibly negotiate directly with your lender. On-line you can find assistance agencies through NeighborWorks America . There are legitimate agencies with missions to help people facing financial difficulty to stay in their homes, finding one in your area and setting up an appointment to review your situation will be helpful. When discussing your options with your lender, letting them know that you are working with an outside organization may help your situation. Your lender may try to pressure you into signing or agreeing to a forbearance, modification, short-sale or lien in lieu of foreclosure right away. Give yourself 24 hours to review the lenders options and try to discuss this with a professional before signing the documents. Be cautious and avoid companies that will loan you a high-interest second mortgage or ask you to sign over the title to your property. They are likely scams.
The problem of foreclosure will not go away on its own, and delaying communication with your lender will make it inevitable. The difference between a foreclosure and a negotiated agreement with your lender can be huge when it comes to your credit rating, and may be your only option to staying in your home. Look at communicating with your lender as a mutually beneficial discussion and you will be in a better position to negotiate.
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