You Are Buried Under Your Mortgage, Now What?
For any number of reasons many homeowners find themselves in the position of either being late on their mortgage or about to be late. There could be a death of the breadwinner, loss of a job, an adjustable mortgage, divorce, loss of a tenant in an investment property and the list goes on.
Prior to going into the foreclosure process, there are other steps that should be considered in dealing with the lender and the mortgage they hold on your property. Some may delay the process, others will avoid it, but in the end the borrower will likely lose the house.
- Deed in Lieu - this is a process in which the homeowner simply turns the keys to the house (deed) over to the lender and no foreclosure needs to take place. The bank has to agree to it, and procedures need to be followed. It is quick and relatively clean.
- Forbearance - in a forbearance the bank allows the borrower to make up the amount that they are behind a little bit every month in addition to their normal mortgage payment. The little "secret" here is that if the homeowner was unable to make the original payment, how are they going to make that payment plus a little more? The answer is that they may be able to for a little while, but will stand a good chance of facing foreclosure down the road.
- Bankruptcy - if the borrower declares bankruptcy, there are legal proceedings that can definitely slow down the foreclosure process, and for borrowers who know the ins and outs of the process they may be able to delay it for a significant amount of time.
- Modification - in a modification the lender, due to a documented hardship on the part of the borrower, may "modify" the terms of the mortgage, reduce the interest rate, add the amount delinquent onto the back of the loan and in some cases reduce the principle amount owed. All of this is done in order to reduce the payment to an amount the borrower can afford and avoid the foreclosure process which is not good for either borrower or lender. It has been shown recently, however, that many borrowers going through the modification process will end up being foreclosed on anyway.
- Short Sale - in a short sale, the lender is simply willing to less to satisfy the mortgage than the amount that is actually owed on it. In the long run for the lender, it will most likely save them time and money by avoiding the foreclosure process. As the manager at a firm that I was trading bonds for once said, your first loss is your best loss.
All in all the best action is to speak with your lender and try to negotiate the best terms that you possibly can and to make the best of what is certainly a bad situation.
“Yesterday is history, tomorrow is a mystery, today is God's gift, that's why we call it the present.” Joan Rivers
“Yesterday is a canceled check; tomorrow is a promissory note; today is the only cash you have - so spend it wisely” Kay Lyons